News & Resources

Market Analysis

Latest Insights
Press Releases
Latest Insights

Weekly Market Analysis
Poppin’ and Droppin’

by Karl Schamotta | December 9, 2016

– Euro Stabilizes After Sharpest Fall Since Brexit

– Dollar Rally Loses Some Momentum

Oil Prices Lift Canadian Dollar


The foreign exchange markets are often described as a ‘roller coaster’, but yesterday’s move in the euro had more in common with a rocket-propelled bungee jump. The common currency initially popped higher after the European Central Bank announced that it would reduce monthly asset purchases by a quarter – but then dropped by the most since the Brexit referendum when Mario Draghi extended bond buying into December next year.

Going into the announcement, traders were largely positioned for a binary outcome – either a six-month continuation of the existing programme, or a six-month “taper” in purchases. Instead, once the knee-jerk reaction to the headline print had passed, the central bank’s relatively open-ended commitment to providing lower amounts of stimulus for longer was viewed as generally dilutive for the currency. Core bond yields surged and then plunged as market participants parsed the details, with many only gradually realizing that nine tranches of 60 billion euros is more stimulative than six tranches of 80.

In the minutes before the post-announcement news conference began, the euro jumped by more than a hundred basis points, before falling almost two percent. Despite our reputations, perhaps foreign exchange traders don’t have the strongest mathematical skills.

Despite the sell-off, the euro remains almost a cent stronger than the low established in November – potentially suggesting that market participants are becoming increasingly skeptical of the Trumpflation dollar rally’s staying power. Count us among them. Markets have seemingly priced in most of the positive aspects of a Trump presidency, turning the dollar into a steamroller that has crushed all other currencies in its path over the past month, but there has been little recognition that major risks remain.

Many have extrapolated greenback strength and corresponding weakness in the euro forward, with several major banks putting forecasts below parity. We can’t rule it out, but the common currency has read its own obituary too many times over the years to make this a prudent bet. As always, we would caution corporate hedgers against relying on these forecasts – due to their very nature, currency markets move in a unpredictable, contrarian manner.

Here in Canada, the currency is receiving solid inflows because the Bank of Canada put the first woman on the $10 note – the addition of Viola Davis to the bill sparked strong inflows over the trading session, pushing the exchange rate upward through several resistance levels to change hands at levels not seen since mid-October.

Or, a jump in oil prices may have something to do with it – front month barrels traded up more than two percent during overnight trading, after the Organization of Petroleum Exporting Countries magnanimously invited 14 non-member countries to a meeting in Vienna on Saturday. With many core cartel suppliers unwilling to commit to actual cuts, and crude markets remaining incredibly oversupplied, the organization is hoping that a broader consensus can be forged among stakeholders that have traditionally shuffled around on the margins.

Given the stakes, the likelihood of an agreement seems high, and speculative money will undoubtedly flow into the long side of the market over the session – but the futures curve remains depressed and volatility measures are falling, suggesting that traders have little faith in the organization’s ability to shift longer-term fundamentals.

It may be time for Albertans, Texans, and North Dakotans to print the fourth round of bumper stickers – “Lord, please give me another oil boom. I promise not to blow it this time!”

Have a great weekend.

Karl Schamotta
Follow @vsualst


For lighter entertainments than the Westworld finale, you could do worse than the following:

International Monetary Fund: Globalization Resets
Vanity Fair: Canada’s Maple Syrup OPEC
Bloomberg: There’s No Fairy Tale Ending to G-20’s Worst Export Slump
Follow the Money: The Case For Naming Taiwan a Manipulator
Bloomberg: Why China Can’t Stop Capital Outflows 
Project Syndicate: Can Trump Save the Euro?
CNBC: Can Algos Trade Trump’s Tweets? Absolutely. Maybe.
Bloomberg: Mexico and China Are Very Different
International Monetary Fund: Global House Prices: Time to Worry Again?

To receive our market analysis direct to your inbox subscribe here!

“Cambridge Global Payments” is a trade name, which in this document refers specifically to one or more of these legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (Nevada), Cambridge Mercantile (Australia) Pty. Ltd.

Cambridge Global Payments (“Cambridge”) provides this document as general market information subject to: Cambridge’s copyright, and all contract terms in place, if any, between you and the Cambridge entity you have contracted with. This document is based on sources Cambridge considers reliable, but without independent verification. Cambridge makes no guarantee of its accuracy or completeness. Cambridge is not responsible for any errors in or related to the document, or for damages arising out of any person’s reliance upon this information. All charts or graphs are from publicly available sources or proprietary data. The information in this document is subject to sudden change without notice.

Cambridge may sell to you and/or buy from you foreign exchange instruments (including spot and/or derivative transactions; both kinds are here called “FXI”s) covered by Cambridge on a principal basis.

This document is NOT: 1) Advice of any kind, or 2) Approved or reviewed by any regulatory authority, or 3) An offer to sell or a solicitation of an offer to buy any FXIs, or to participate in any trading strategy.

Before acting on this document, you must consider the appropriateness of the information, based on your objectives, needs and finances. For advice, you must contact someone independent of Cambridge.

Certain FXIs mentioned in this document may be ineligible for sale in some locations, and/or unsuitable for you. Contact your Cambridge representative for further information regarding product availability/suitability before you enter into any FXI contract.

FXIs are volatile and may cause losses. Past performance of a FXI product cannot be relied on to determine future performance.

This document is intended only for persons in Canada, the US, and Australia. This document is not intended for persons in the UK or elsewhere in the EEA. In Australia, this publication has been distributed by Cambridge Mercantile (Australia) Pty. Ltd. (ABN 85 126 642 448, AFSL 351278); for the general information of its customers (as defined in the Corporations Act 2001). This entity makes no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law.

Fees may be earned by Cambridge (and its agents) in respect of any business transacted with Cambridge.

The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact the applicable Cambridge if you wish to use Cambridge services to enter a transaction involving any instrument mentioned in this document.

© Copyright 2018, Cambridge Mercantile Corp., ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Cambridge Mercantile Corp. See for contact details.